Increasingly, banks are making it difficult for customers to contemplate switching banks without taking a financial hit. It seems that large consumer banks are the worst offenders, using hidden fees to levy billions of dollars in charges against consumers. This has caused the Consumer Financial Protection Bureau to take notice. The bureau has just concluded an extensive study that looks at the fairness of “overdraft fees,” which can make up more than $25 billion in revenue for banks that charge fees of $35 anytime someone overdrafts their account. The major culprits are the big banks, those with $25 billion or more in assets. Until these banks can accurately report your spending, overdraft fees should be done away with or substantially lowered.
Richard Cordray, director of the Consumer Financial Protection Bureau, said in a conference call that “overdraft protection can, in some instances, put consumers at greater risk of harm.” Estimates show that bank customers who are heavily charged for overdraft fees can pay upwards of $900 more per year for basic financial transactions than a normal bank customer.
The increased scrutiny by the CFPB is not without response. Since 2008, banks have lowered overdraft fees. A report from The Motley Fool shows that in some cases it can actually be cheaper to pay a $16 fee with a payday lender on $100 borrowed, than to pay a $35 fee at JPMorgan Chase if the customer is caught without funds in his account.
Real-time payment processing is pretty much here, so why can’t the banks seem to report the money you spend properly? Banks will tell you that this relates to the size of a purchase. They argue that larger transactions are levied first, and the smaller transactions trickle in afterward. This is a problem for college students or low-income families that don’t have a lot of disposable income. You can’t avoid paying for textbooks, or car registration, but when you try to buy your lunch the next day, the banks are waiting in the wings to collect on that transaction.
In 2010, the Federal Reserve issued a ban on fees for ATM transactions without a customer’s expressed acceptance of the program. A report issued that year cautioned consumers that those who opted out of these overdraft “protection” programs tended to pay far less yearly than those who remained enrolled. Even with these laws, the CFPB report states that 61% of fees levied by banks came from overdraft and non-sufficient-fund protection.
The solution is to spend your money wisely. Use web applications to keep track of your financial records so that you aren’t spending recklessly. Get in the habit of checking your bank account daily so that you have a solid idea of your finances at any given moment. Shop for credit cards responsibly, use online services to find the best airline credit card rewards and other benefits like 0% balance transfers. Use these temporary stop-gaps to help pay off debt, or take a vacation without spending a lot of the money you need to pay off bills.
And finally, save consistently as well. Saving a few hundred dollars each month can add up to more than a half a million dollars by the time you hit retirement age.